A federal judge in Texas recently cast new doubt on the National Labor Relations Board’s (NLRB) ability to oversee labor disputes, agreeing with SpaceX that the agency’s Board Members and Administrative Law Judges (ALJs) are likely serving unconstitutionally.
SpaceX filed a complaint in the Western District in Texas in April 2024, seeking preliminary injunction to block an administrative unfair labor practice charge from proceeding against SpaceX. SpaceX argued that it was likely to succeed in establishing that NLRB Members and ALJs are unconstitutionally protected from removal. On July 10, 2024, the Court granted SpaceX’s motion, blocking the charge from proceeding and on July 24, 2024, the Court issued a written order enjoining the Board and ALJ proceeding against SpaceX in NLRB Case No. 19-CA-309274.
The Court first found that SpaceX was likely to succeed in showing that ALJs are unconstitutionally insulated from removal. In reaching this decision, the Court relied on Jarkesy v. Sec. & Exch. Comm’n, 34 F.4th 446 (5th Cir. 2022), which held that statutory removal restrictions for Security Exchange Commission (SEC) ALJs are unconstitutional due to double-layer protection from removal. Similarly, NLRB ALJs have substantial executive functions and are protected by layers of removal restrictions. NLRB ALJs can only be removed when the Merit System Protection Board (MSPB) finds good cause, and MSPB members may only be removed by the President for “inefficiency, neglect of duty, or malfeasance in office.” The Court noted that “the NLRB cannot escape the binding nature of Jarkesy which squarely controls this Court’s analysis of SpaceX’s likelihood of success on the merits as to the ALJ claim.”
Second, the Court found that SpaceX is likely to succeed in showing that NLRB Members are unconstitutionally insulated from removal. The Court reasoned that NLRB Members are removable only “for neglect of duty or malfeasance in office, but for no other cause,” which is a stricter standard than those that have insulated the commissioner of the Federal Trade Commission (FTC), who is also removable for inefficiency.
Notably, the NLRB argued that a preliminary injunction was inappropriate because the appropriate remedy is to sever the unconstitutional provision from the otherwise constitutional law. The Court rejected this argument, reasoning that “a statute must be found to be inoperative or unconstitutional as it was written before the issue of severance can be reached.” As such, it would be premature to consider severance on a motion for preliminary injunction.
SpaceX’s victory follows the U.S. Supreme Court’s decision last month in Loper Bright Enterprises v. Raimondo, where the U.S. Supreme Court overturned the longstanding Chevron deference doctrine holding that judges should defer to agencies in cases where the regulatory laws are ambiguous. Loper Bright held that, under the Administrative Procedure Act, courts must “exercise independent judgment in determining the meaning of statutory provisions,” even ambiguous ones. While the impact of Loper Bright remains unclear for NLRB proceedings, the decision provides opportunities for new arguments opposing agency interpretation, as well as challenges to existing agency rules or standards. In its supplemental briefing filed with the Western District of Texas, SpaceX argued that Loper Bright is relevant to how the Court should view the NLRB’s arguments on the preliminary injunction factors. SpaceX argued that Loper Bright cautions courts against deferring to agencies’ about the scope of their authority, while judges, on the other hand, have an obligation to apply independent judgment. As such, SpaceX argued, “in balancing the equities or determining where the public interest lies, the NLRB does not get a thumb on the scale in favor of its own evaluation of the importance of its statutory mission[.]”
Similarly, on July 29, 2024, a judge in the Southern District in Texas granted a preliminary injunction filed by another employer to block an administrative unfair labor practice charge from proceeding against that company. The judge granted the preliminary injunction on similar grounds as the SpaceX case.
Ultimately, the Court decisions preclude the NLRB from proceeding with the pending administrative charges against the respective employers while the lawsuits play out, but they are not nationwide injunctions against the NLRB’s ability to operate. Appeals are almost certainly to follow. In the meantime, however, we expect to see an increase in petitions for injunctive relief, especially in states covered by the Fifth Circuit and employers raising similar constitutional arguments as affirmative defenses to administrative charges and complaints with the NLRB.
Takeaways
If the lawsuits ultimately succeed and the NLRB is dismantled in whole or in part, we may see a dramatic transformation of the way union organizing, elections, and worker and union disputes are decided under the National Labor Relations Act (NLRA). We will continue to monitor developments in these cases, as well as the expected wave of challenges to the NLRB’s rules and positions.